Compliance
Compliance Guide for Employers: OBBB Reporting of Tips, Overtime, and Car Loan Interest
Employers face new information reporting duties under OBBB — getting ahead of these changes now ensures compliance and avoids penalties down the road.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## New Reporting Obligations Under OBBB
Under OBBB (Public Law 119-21), employers and payors must report:
- **Cash tips** and the **occupation** of employees receiving them;
- **Qualified overtime compensation**, i.e. the portion over the base rate under the Fair Labor Standards Act;
- **Interest on applicable passenger vehicle loans** paid in 2025 or later for vehicles meeting certain criteria. ([irs.gov](https://www.irs.gov/forms-pubs/how-to-update-withholding-to-account-for-tax-law-changes-for-2025?utm_source=openai))
These requirements introduce complexity in payroll and bookkeeping systems, especially as many employers are not yet collecting occupation codes or detailed breakdowns.
## Transition Relief for Tax Year 2025
To ease the burden, the IRS and Treasury have issued **penalty relief** for 2025 under Notice 2025-62:
- No penalties for failing to separately report cash tips or the occupation of the tipped employee;
- No penalties for omitting overtime compensation in separate reporting;
provided that a complete, correct return or statement is filed otherwise. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
Also, for interest on applicable passenger vehicle loans in 2025, Notice 2025-57 allows recipients to fulfill the new section 6050AA reporting by providing a statement indicating the total interest received in 2025 — avoiding immediate penalties. ([irs.gov](https://www.irs.gov/irb/2025-45_IRB?utm_source=openai))
## What Employers Should Do Now
- Update payroll and HR systems to collect occupation codes for tipped employees and distinguish qualifying overtime amounts.
- Ensure loan interest on eligible vehicles is tracked, and vehicle info (make, VIN, etc.) collected to confirm whether vehicle is applicable.
- Train relevant staff (payroll, accounting) on definitions: what counts as “qualified tips,” “qualified overtime,” “applicable passenger vehicle.”
- Keep good documentation — even during 2025 transition — to facilitate compliance when enforcement resumes fully in 2026.
## Example Scenario
A restaurant employs servers earning cash tips and pays overtime. In 2025, the restaurant doesn’t collect occupation codes or track tips separately — under transition relief, it won’t face penalties provided the relevant total amounts are reported. Beginning in 2026, though, they must collect these codes and itemized breakdowns — or face penalties. Thus, they should begin readiness work during the last months of 2025.
## Key Takeaways for Employers
- Use penalty relief as a buffer to get systems in place rather than an excuse to delay;
- Start collecting extra data now;
- Communicate with employees about reporting changes;
- Consult with payroll service or tax advisor to ensure software updates reflect OBBB requirements.
**Category:** Compliance